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German residential investment market in Q4 2018

Third highest transaction volume in the last ten years – more than a third of investors were first-time purchasers

Third highest transaction volume in the last ten years – more than a third of investors were first-time purchasers

Above-average annual investment volume despite modest decreaseProperties* in the German residential investment market changed hands for a total of almost €15.1bn last year. Despite a modest decrease of 3% in investment volume compared with the previous year, the market registered its third highest transaction volume of the last ten years. “German residential property remains a sought-after product among institutional investors,” says Karsten Nemecek, Managing Director Corporate Finance – Valuation for Savills Germany, adding: “From an investor's perspective, the situation in the residential market is still positive in view of the strained rental apartment markets and a continued shortage in new-build activity. The market’s safe haven status remains intact despite additional regulatory hurdles.” Overall, almost 122,000 apartments were transacted last year, which was approximately 7% less than in the previous year.

Smaller residential portfolios dominate market activityAs per the previous two years, disposals of development projects accounted for a significant proportion of investment activity. Such transactions were responsible for approximately 26% of the transaction volume in 2018. The acquisition of Buwog by Vonovia last year was the largest transaction since the Gagfah acquisition in 2015.

Overall, however, investment market activity was somewhat more fragmented. Transactions with a double-digit or triple-digit quantity of apartments accounted for 48% of all apartments transacted, compared with a five-year average of 29%. “The smaller lot sizes are a reflection, on the one hand, of the increasing prevalence of development acquisitions and, on the other hand, the likelihood that the lack of supply of large portfolios has increased investors’ willingness to acquire smaller residential portfolios,” says Matti Schenk, Senior Consultant Research Germany for Savills. An average of 458 apartments changed hands per transaction last year (2017: 402).

Purchaser landscape increasingly varied – more than a third of purchasers were newcomersThe continued strong appeal of the German residential property market to institutional investors is reflected in the large number of first-time purchasers. Of the purchasers in 2018 known by name, 38% were investing in the German apartment market for the first time in the last ten years. These investors were responsible for approximately 17% of the overall transaction volume. By far the largest new investor was Danish pension fund PFA. “In addition to European investors, a number of German insurance companies and pension schemes also made their first direct investments,” says Nemecek. Overall, German investors accounted for approximately 78% of the transaction volume.

European purchasers were responsible for around 19% of investment.

Transaction volume likely to reach a similar level in 2019“The further growth in the investor base, including a number of newly launched residential property funds that are only just beginning to build their portfolios, is likely to ensure above-average transaction volume once again this year,” says Schenk. Savills expects the transaction volume in 2019 to be in line with last year's total.